Dressed for success when entering the Swedish market : Changes and composition of the board of directors in IPO companies and the effect on firm valuation

Abstract: The initial public offering (IPO) of a company is characterized by uncertainty, and a large body of research has focused primarily on underpricing. This study takes a different approach by examining the changes and composition of the board of directors in IPO companies and the effect on market valuation measured by the market-to-book ratio. A company's preparation for the IPO is argued to be made with value maximization features, and it is therefore interesting to see if the market assesses specific changes and the characteristics of the board of directors on the first day of trading. This study takes a starting point in agency theory, signaling theory, and the role of the board of directors in a company to protect and maximize shareholder value, in order to examine the effect on firm value. The sample consisted of 204 IPOs between 2018 and 2021 on Nasdaq Stockholm and First North Growth Market. The study has used multiple OLS regression models to examine the relationship between the board of directors' composition, characteristics, and market-to-book ratio. The findings suggest that an increase in the proportion of directors that have been subject to change two years or less before the IPO is negatively related to market valuation.